Private equity firms have traditionally had little room for lawyers in their small partnerships. For firms managing less than $5bn, the average number of staff is less than 30 people, while large buyout houses have less than 15 people for every $1bn of assets under management that they operate, according to data provider Preqin.

Unravelling red tape

This leaves little room for skills that can be easily hired in from elsewhere – such as legal advice.

But in recent years this has begun to change. Since the financial crisis began, firms have realised that there is a need for in-house legal expertise and, since 2008, a string of moves has emerged.
Behind the appointments is a rise in regulation, compliance procedures, deal complexity and cost savings, according to legal advisers.

The head of one private equity firm said that within a few weeks of his company hiring its first in-house lawyer “we wondered how we ever managed without one”.

Vix Sherliker, general counsel at placement adviser MVision, said the recent acceleration of in-house hires had been driven by the increase in global compliance regulation for investment funds. She said: “There is a seemingly endless stream of new regulation that must be complied with [such as the Alternative Investment Fund Managers Directive and the Foreign Account Tax Compliance Act].

“Being in-house means lawyers can really understand, and better deal with the compliance and regulatory needs of the business.” She added there was a “huge number of legal aspects to investment funds and fundraising”.

Sue Woodman, general counsel at Equistone Partners Europe, said “more and more” firms were appointing general counsel and agreed that increased regulation had probably been the main driver. She said: “It is something that generally pays for itself quite quickly as it is seen as a positive to business to cover the bases that executives don’t necessarily always think about.”

There are now only a few examples of large buyout firms that do not have in-house legal directors. These include BC Partners and Montagu Private Equity.

Ian Bagshaw, a partner at law firm Linklaters, explained that, in the 1990s, there were only a handful of lawyers appointed by private equity firms in Europe and they tended to work on execution matters.
More recently, firms have been building in-house functions that support the firm but do not necessarily do transactions.

He said: “The European market normally follows the US market but it hasn’t in this respect.”

But not all firms operate their in-house legal teams in the same way. Various legal directors, who asked not to be named, said the role of general counsel varied widely at private equity firms, with some getting involved on the commercial aspects of deals and others focusing solely on compliance.

Other factors are also fuelling the appointments, such as firms having a greater diversity of products and operating in more regions, including emerging markets, which can potentially pose a bigger risk, according to David Higgins, head of private equity at law firm Freshfields Bruckhaus Deringer. He said: “I also think, post-Lehman, people now realise that the quality of their legal documents is important as, when things go wrong on deals, you need to have had your legal rights clearly set out in key documents.”

Most of the in-house teams remain relatively small, with the largest European divisions understood to be at Carlyle Group and 3i Group – each of which has four lawyers and a greater need for legal teams because they are listed.

Woodman said: “Things aren’t going to get any easier on regulation. I don’t think the spotlight is going to go off private equity, especially as it buys up more high street names, so firms have to be whiter than white.”

-- How hiring has stepped up after the crisis

Last June, UK turnaround firm Endless hired Simon Hardcastle, a director from Leeds-based law firm Walker Morris, to the newly created role of general counsel.

The same year, buyout firm Doughty Hanson hired Julie Bradshaw to its in-house legal team from law firm Weil Gotshal & Manges.

In 2009, UK mid-market firm LDC hired John-Paul Preston from private bank Coutts as its second lawyer. In April the same year, Italian firm Investindustrial hired Marco Pierettori as its internal legal counsel and, the previous August, Charles Barter, the former head of private equity at law firm Travers Smith, joined buyout house Bridgepoint as its first general counsel.

Barter’s move came six months after Alison Hampton, a consultant at US law firm Weil Gotshal & Manges’ London office, became the general counsel at UK buyout firm HgCapital. Hampton was last year replaced in the role by Andrew Jessop, who joined from Clifford Chance, although she continues to work part-time.

Other more recent changes have seen Claire Wilkinson leave her role as general counsel of placement agent MVision this year to take on an undisclosed role. She has been replaced by in-house lawyer Vix Sherliker.

-- Legal stars

Well-regarded general counsel and in-house lawyers, according to external counsel and other legal directors, include:

Apax Partners – Simon Cresswell, partner and general counsel

London-based Cresswell joined the buyout firm two years ago. He previously worked at Goldman Sachs and law firm Davis Polk & Wardwell.

Blackstone Group – Geoffrey Bailhache, senior vice-president

London-based Bailhache works on transactional support across Blackstone’s various divisions. He joined the firm in 2010 after working at law firms Weil, Gotshal & Manges and SJ Berwin.

Bridgepoint – Charles Barter, general counsel

Barter, head of private equity at law firm Travers Smith before joining Bridgepoint, is responsible for the firm’s legal and tax, regulatory and compliance functions, and also works closely with its deal teams on transactions across Europe.

Carlyle Group – Heather Mitchell, managing director and general counsel for Europe and Africa

Since joining Carlyle in 2002, Mitchell has held various roles at the firm. She serves on the British Private Equity and Venture Capital Association’s regulatory committee.

Equistone Partners Europe – Sue Woodman, general counsel

Woodman joined Equistone in 2011 after previously spending 13 years at Alchemy Partners. She is a former chairman of the BVCA legal and technical committee and has been on its executive council for five years.

(All the above were named by two or more senior figures in the legal industry for their strong reputation)

--This article first appeared in the print edition of Financial News dated 18-02-2013